TY  - GEN
AB  - This paper explores how different credit market- and banking regulations affect business fluctuations. Capital adequacy- and reserve requirements are analysed for their effect on the
risk of severe downturns. We develop an agent-based macroeconomic model in which finan-
cial contagion is transmitted through balance sheets in an endogenous firm-bank network,
that incorporates firm bankruptcy and heterogeneity among banks to capture the fact that
contagion effects are bank-specific. Using concepts from the empirical literature to identify
amplitude and duration of recessions and expansions we show that more stringent liquidity
regulations are best to dampen output fluctuations and prevent severe downturns. Under
such regulations both leverage along expansions and amplitude of recessions become smaller.
More stringent capital requirements induce larger output fluctuations and lead to deeper,
more fragile recessions. This indicates that the capital adequacy requirement is pro-cyclical
and therefore not advisable as a measure to prevent financial contagion.
DA  - 2015
DO  - 10.4119/unibi/2915552
KW  - Financial Crises
KW  - Credit market and banking regulations
KW  - Financial Fragility
KW  - Agent-Based Macroeconomics.
LA  - eng
PY  - 2015
SN  - 2196-2723
SP  - 52-
TI  - Bubbles, Crashes and the Financial Cycle: Insights from a Stock-Flow Consistent Agent-Based Macroeconomic Model
UR  - https://nbn-resolving.org/urn:nbn:de:0070-pub-29155522
Y2  - 2024-11-22T07:05:35
ER  -